A Look At The SPY Ahead Of FOMC Statement

The SPDR S&P 500 SPY had a quiet start to Wednesday’s trading session ahead of the Federal Reserve's policy statement at 2 p.m. ET followed by Fed Chairman Jerome Powell’s press conference at 2:30 p.m.

Inflation fears have spooked the market at various times over the past few months and although the Fed is largely expected to keep interest rates near zero, traders and investors will be watching closely for hints of tapering.

The central bank, which has been purchasing about $120 billion of U.S. Treasuries and agency mortgage-backed securities each month to boost the economy throughout the COVID-19 pandemic, could begin to cut back on its purchases if the Fed shifts its policy.

The infrastructure deal, which U.S. Senate Majority Leader Chuck Schumer says could get a procedural vote as early as Wednesday night, also hangs in the balance.

Despite how the SPY reacts to headlines and events there are key levels and patterns at play for technical traders to watch.

The SPY Chart: On July 26, the SPY reached a new all-time high of $441.03 to start the most concentrated week of big tech earnings. The SPY has since consolidated the move and trading in a tight $3 range between about $336 and $339.

The run-up into earnings season, between July 20 and 26, created the pole of a daily bull flag pattern and the consolidation on Tuesday and Wednesday created the flag of the pattern. The measured move of the bull flag comes in at 3.82%, which indicates the SPY could reach about $452 if the pattern is recognized and bullish momentum comes in. The measured move is determined by measuring the length of the pole in a bull flag and adding that number to the bottom of the flag.

The SPY is trading above both the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending above the 21-day EMA, both of which are bullish indicators for the short term. The consolidation has allowed both EMAs to catch up closer to the SPY price, which may give bulls more confidence. The SPY is also trading well above the 200-day simple moving average which indicates overall sentiment is bullish.

• Bulls want to see a bullish reaction to the Fed’s policy statement and for big bullish volume to come in and break the SPY up from its daily bull flag. If the SPY can surpass its all-time high, there will be no further resistance in the form of price history.
• Bears want to see a bearish reaction to the Fed and for big bearish volume to come in and break the SPY down through the flag. If the SPY retraces further, its closest support levels are at $437, $433 and $428.

Federal Reserve building. Photo: Dan Smith via Wikimedia Commons